What You Should Know About Your Advisor that FINRA Might Not Tell You and
Three Things You can Research About Your Investment Advisor or Broker
on Your Own
Every educated investor knows that conducting proper due diligence before
investing with a broker, adviser, or other financial professional is essential
to investor protection. And, usually, that means researching the professional
through FINRA’s BrokerCheck and/or the relevant state securities
regulator. Unfortunately, many investors stop there, which is often a mistake.
First, state securities regulators and FINRA can only provide information
on registered professionals whom they know about. If you use BrokerCheck
to find information on a broker or your state securities regulator’s
website to find information on an adviser and you come up empty handed,
you should consider that a red flag that the so-called professional may
not be who they appear to be.
Even if you do find information on them, however, be aware that there
is a long list of information that may not be disclosed online, including:
• A complete history. If a broker has a long history, it is unlikely
that the entire history will be chronicled in BrokerCheck. To obtain information
on all the actions reported against a broker since he or she first became
registered with FINRA, you would need to obtain a “legacy file.”
• Why a broker was terminated. FINRA’s BrokerCheck may include
a record of termination, but it won’t give you a specific reason.
It’s worth finding out whether the termination was due to serious
misconduct – like stealing or
churning accounts – or something more innocuous.
• Records and actions that have been expunged. Brokers have the right
to petition for expungement of customer disputes, arbitration awards,
and orders against them. If the expungement is approved, all the records
are taken out of BrokerCheck’s central database, which means a search
in BrokerCheck could reveal a clean record, even if the broker has been
State securities regulators usually include more information in their
reports than the information provided by FINRA, but that information can
be confusing and/or buried in long reports, which may make it difficult
to find. Try to verify the information you receive with a second or third
source before investing with any financial professional, and consider
asking for references. Unfortunately, even the best attempts at due diligence
cannot protect you from investment fraud completely, but every extra step helps.
Taking these simple steps in selecting or researching your broker or advisor
can make for a smarter and more secure investment experience. However,
breach of fiduciary duty continues to be the most common type of claim filed with FINRA, followed
failure to supervise,
unsuitability claims and breach of contract.
Recently, the percentage of FINRA panel decisions in which investors were
awarded damages has steadily increased - offering a positive trend for
those seeking to reclaim lost investment monies. So far, a large number
of the claims filed throughout 2011 - 2012 involve common stock securities and
mutual funds. You can read more in our
blog posting here.
If you've had a bad financial experience with an investment broker
or advisor - there may be recourse. Contact us with the scope of the situation
via the form at the top of this page.